US Dollar Dominance and International FX Centers

“Worldwide use of the dollar is the equivalent of worldwide use of English, or perhaps American.”  This was a remark made in the 1980s by Charles Kindleberger, a legendary professor in international finance at MIT.  A decade later, Harvard University professor Jeffrey Frankel commented, “Nobody would claim that English is particularly well suited to be the world lingua franca by the virtue of its intrinsic beauty, simplicity, or utility.  One chooses to use a lingua franca, as one chooses a currency, in the belief that it is the one others are most likely to use.”  Despite recurring speculation about a shift away from the U.S. dollar whenever the U.S. trade or current account deficit widened and the dollar weakened in foreign exchange markets, the overwhelming status of the dollar in currency and capital markets has remained unchanged.

The Bank for International Settlements (BIS) conducts a survey of foreign exchange markets every three years through central banks worldwide. The results of the April 2025 survey have recently been released.  The daily global transaction volume reached $9.6 trillion—over 140 times the daily value of global trade—marking a 28% increase from the previous survey three years ago, or an annual growth rate of 9%. Despite geopolitical tensions and conflicts, financial globalization has steadily progressed over the past three years.

By currency, the U.S. dollar accounted for 89% of transactions[1].  In other words, one side of nearly every foreign exchange transaction involved the dollar. Currency exchanges that did not involve the dollar were largely limited to transactions between the euro and other European currencies.  This dominance of the dollar has remained unchanged since the BIS began this survey in 1989, when the dollar’s share was 90%.

Other major currencies’ shares in 2025 were: euro 29%, yen 17%, and British pound 10%—all significantly smaller than the dollar’s share.  Although these shares have declined slightly over the past 30-plus years, the overall picture has remained largely unchanged.  The notable exception is the Chinese yuan.  Before China joined the WTO in 2001, its share was 0%, but by 2025 it had risen to 9%.  However, this is still disproportionately small compared to China’s economic and trade scale, which rivals that of the U.S.  Moreover, much of the yuan’s trading occurred in Hong Kong and the UK, while in Shanghai, domestic transactions dominated and international trading was extremely limited, perhaps due to strict foreign exchange controls.  Other currencies that have gained share include the Australian dollar, Canadian dollar, Hong Kong dollar, and Singapore dollar.  The first two have grown as targets for international portfolio investment, while the latter two have expanded as currencies of international financial centers.

Geographically, four regions—UK, U.S., Singapore, and Hong Kong—account for a staggering 75% of global foreign exchange transactions.  Japan and Germany each account for only 3%, with other advanced economies and China capturing even less.  Among these, Singapore has doubled its share over the past decade to reach 12%. Singapore operates in a time zone similar to Tokyo and is English-friendly. Furthermore, advances in information and communication technology have made it easier to conduct financial transactions in a currency even outside its issuing country. In terms of talent acquisition, Singapore offers a significant advantage over Tokyo, i.e., with lower income tax rates for high earners, financial institutions can guarantee the same post-tax income to top-tier professionals by paying only half the pre-tax salary required in Tokyo.  For global financial institutions, saving hundreds of millions of dollars annually is a compelling incentive to relocate operations to Singapore.  Today, Singapore’s total foreign exchange transaction volume is four times that of Japan, and even in yen transactions, it exceeds Japan’s volume by 14%.

To become an international hub that attracts talent—not just in finance but across sectors—Tokyo or any other Japanese city must offer compelling advantages that offset its tax disadvantages.

[1] Since currency pairs are exchanged, the total share is 200%